Introduction

Broadly speaking, there are two strands of empirical research on the economics of minimum wages. The first strand examines the economic impacts of minimum wages. The bulk of this work attempts to isolate the effects of minimum wages on other economic variables (employment, unemployment, school enrollment, earnings, etc.). The second strand examines the incidence of minimum-wage workers. It attempts to identify who in fact earns the minimum wage and what characteristics are common among workers earning minimum wage. This strand of research, in conjunction with the first, is useful for policy purposes because it enables us to determine who is likely to be most affected by changes to the minimum wage. Since a great deal of the policy debate concerning minimum wages revolves around the effects that changes in minimum wages have on the distribution of income, knowledge about who earns the minimum wage and their characteristics is of vital importance.

Among economists, there is a substantial consensus about the impacts of minimum wage legislation.⁴ Most economists would argue that increases in the minimum wage reduce employment and raise unemployment rates of unskilled workers.⁵ Furthermore, economists tend to agree that increases in the minimum wage are likely to do more harm than good. In particular, the bulk of the empirical evidence suggests that minimum wage laws tend to harm the groups these laws are intended to help—the young, the working poor, and the unskilled. Policy makers and politicians, however, continue to find this evidence unconvincing. In Canada, many provincial governments have raised, or are considering raising, minimum wages in efforts to help the working poor.⁶ In the United States, President Bill Clinton recently raised the federally mandated minimum wage and is apparently considering increasing it again. Hence, it would appear that political, as opposed to economic, considerations dominate when it comes to public discussion of the desirability of minimum wage legislation.⁷

This Public Policy Source provides a review of some of the available research on the effects of minimum wages. Specifically, I ask two questions: (1) what are the economic impacts of minimum wages and (2) who are the workers earning minimum wage in Canada and what are their characteristics? In answering the first question, I review the available evidence from the United States and Canada and find that, by and large, most studies conclude that increases in minimum wages reduce employment rates and increase unemployment rates of the most vulnerable members of the work force. Increases in the minimum wage are also associated with other economic effects, including higher school-dropout rates, reduced on-the-job training, and fewer fringe benefits. In answering the second question, I identify minimum-wage workers according to age, education, sex, location, industry, and household status (i.e. do minimum-wage workers live alone or in families?). The bulk of the data comes the 1993 Survey of Labour Income Dynamics and the 1986 Labour Market Activity Survey, and are presented in two recent Canadian studies on this topic (Fortin and Lemieux 1997; Akyeampong 1989). By and large, the data suggest that the incidence of workers earning minimum wage in Canada accords with the consensus among economists that most workers who earn minimum wage are the young and unskilled and that many live at home with their parents. These findings, in conjunction with what is known about the effects of rising minimum wages, suggest that an increase in the minimum wage is probably an ineffective instrument for redistributing income to those in need.